Buoyant private consumption has fuelled a recovery from the 2001 slowdown. With a pick-up in external demand, output growth of around 6 per cent is projected to continue through to 2004. The unemployment rate is below 3 per cent and, though inflation has stabilised at around 3 per cent, a double-digit hike in wages and a sharp increase in housing prices are raising concerns about the outlook for inflation. Given the pressures emerging in the labour and real estate markets, it will be necessary to reverse gradually the decline in short-term interest rates that occurred in 2001 in order to achieve the medium-term inflation target of 2½ per cent. The privatisation of government-owned banks is important to promote corporate restructuring and to cover at least part of the cost of financial-sector restructuring. A prudent fiscal policy will be needed to absorb the remainder of such costs.